## Facts

- The Federal Reserve Board solicited bids for an intermediate, general-purpose digital computer system and emphasized early delivery.
- Wegematic Corporation proposed the “ALWAC 800,” describing it as a “revolutionary” system using the latest advances, and offered delivery within nine months.
- The Board accepted the proposal and issued a purchase order for $231,800, requiring delivery by June 30, 1957, with liquidated damages of $100 per day for delay.
- The contract authorized the Board, upon Wegematic’s failure to comply, to procure substitute services/equipment from other sources and hold Wegematic responsible for any excess cost.
- Wegematic later sought delivery extensions and requested waiver of liquidated damages, citing redesign and delays; the Board refused to extend performance time.
- Wegematic ultimately stated delivery had become impracticable due to basic engineering difficulties, asserting resolution would require years and substantial expense with uncertain success.
- The Board obtained substitute equipment from IBM at a higher cost and incurred preparatory expenses for the anticipated installation of the ALWAC 800.
- After a bench trial, the district court awarded the United States liquidated damages, the excess cost of the IBM substitute, and certain preparatory expenses; Wegematic appealed.

## Issues

1. Whether Wegematic’s nonperformance was excused under impossibility or commercial impracticability based on unforeseen engineering and developmental difficulties.
2. Whether the contract allocated the risk of failure of an innovative, unproven design to Wegematic or to the governmental purchaser.
3. Whether the United States properly recovered liquidated damages for delay, excess costs of cover, and preparatory (reliance/incidental) expenses.

## Decision

- The Second Circuit affirmed the judgment for the United States.
- Engineering and developmental problems in producing the ALWAC 800 did not constitute an excusing contingency; Wegematic remained liable for breach.
- The court treated U.C.C. § 2-615 as persuasive guidance and concluded the asserted difficulties were risks inherent in the undertaking rather than a supervening event.
- The damages award was upheld: the liquidated-damages clause was enforceable, the excess cost of the IBM substitute was authorized and recoverable, and the preparatory expenses were foreseeable and recoverable.

## Legal Principles

- Commercial impracticability excuses performance only when a contingency occurs whose nonoccurrence was a basic assumption of the contract; mere difficulty, increased cost, or developmental setbacks ordinarily do not suffice.
- A seller that markets an innovative product as feasible and commits to a firm delivery schedule generally bears the technological and developmental risk of making the product perform as promised.
- Where a contract authorizes cover and assigns excess costs to the breaching seller, the buyer may procure a reasonable substitute and recover the difference between the substitute cost and the contract price.
- Liquidated damages for delay are enforceable when reasonably related to anticipated harm and where timely delivery is material to the bargain.
- Foreseeable preparatory expenditures made in reliance on performance may be recovered when they are caused by the seller’s breach and not excluded by the contract.

## Conclusion

The court held that Wegematic could not avoid liability by invoking impracticability based on engineering difficulties in developing its promised “revolutionary” computer; having assumed the risk of the unproven design and made binding delivery commitments, it was responsible for liquidated damages, the government’s excess cover costs, and foreseeable preparatory expenses.


United States v. Wegematic Corp., 360 F.2d 674 (2d Cir. 1966)